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Against the yen, the dollar was heading for its best month in 1
1/2-years <JPY=>. It has gained more than 4 percent since early
May after Japanese officials warned several times they would
intervene to weaken the currency.
The latest trigger for dollar strength came from Federal Reserve
Chair Janet Yellen, who said on Friday a rate increase in the
coming months "would be appropriate" if the economy and labour
market continued to improve.
The biggest gainer of the day, though, was the Australian
dollar. It climbed almost 1 percent against its U.S. counterpart
after stronger-than-expected domestic economic data <AUD=D4>.
In London, Bank of Tokyo-Mitsubishi UFJ strategist Derek
Halpenny said expectations the Fed would raise rates only
gradually was helping market sentiment and providing support to
riskier currencies like the Aussie.
"The forward guidance message in terms of two rate increases
this year rather than four is certainly helping broader market
stability," he said. "The markets seem more content with the
idea of a rate increase in June or July and the other not coming
until December."
Societe Generale macro strategist Kit Juckes, however, said he
did not expect the Fed to raise rates in either June or July,
but the fundamentals - economic and policy divergence between
the United States and other major economies - signalled further
dollar strength.
"The question for me here is whether the dollar can carry on
rallying on the prospect of the Fed raising rates faster over
the next 18 months than is priced in, as opposed to rallying
only on expectations of a move in June or July," he said.
The dollar index, which measures the greenback against a basket
of six major peers, rose 0.1 percent on Tuesday to 95.627 <.DXY>,
close to the previous day's two-month high of 95.968 and putting
the dollar on track for its best month since November.
Against the yen, the dollar rose towards a one-month high,
trading up 0.1 percent on the day at 111.16 yen <JPY=>.
If U.S. payrolls due on Friday show solid job growth and if
Yellen signals a rate increase in her speech the following
Monday, the dollar could break above the previous April peaks
close to 112 yen, said Koichi Takamatsu, manager of forex at
Nomura Securities.
(Additional reporting by Hideyuki Sano in Tokyo; Editing by
Larry King)
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